Fertilizer importers to India have had to contend with a weakening local currency in the third quarter — typically the monsoon season in India — below-par rainfall and the prospect of increasing domestic prices. An adverse impact on the consumption of phosphatic and potash fertilizers is therefore likely in the fourth quarter.
The most pressing concern is the weakening currency. The rupee fell to Rs72.54 today against the dollar from Rs66.92 on 1 June, a drop of around 8pc. The rupee fell to a historic low of Rs73/$ two weeks ago before rebounding slightly.
Adding to this, rainfall this monsoon has been below par, slipping to a 10pc deficit to the historic average, contrary to a forecast earlier this year. Rainfall was recorded at 750.5mm from 1 June to 19 September, compared with the long-term average of 834.5mm.
These factors were behind an increase to the maximum retail price (MRP) of DAP for the fifth time this year to Rs28,000/t ($385/t) from Rs21,720/t in January. In the latest hike — the largest this year — Indian importers IPL and Zuari raised the MRP from Rs26,800/t to counteract the effects of the sliding currency. Most rises this year have been around Rs1,000/t.
India has imported 4.3mn t of DAP in April-September, with a further 1mn t needed in October-March, Argus estimates. This puts the import forecast for 2018-19 above the 4.2mn t imported in 2017-18, but only because of a reduction in the domestic production of DAP. Production of 4.6mn t last year is expected to drop to 3.6mn t this fiscal year because of the high cost of imported phosphoric acid.
At current MRP levels, a weak currency and the lacklustre monsoon will affect the consumption of DAP by around 5pc year on year in 2018-19, Argus estimates, despite the projected imports for this year.
In the potash markets, IPL recently signed the first 2018-19 MOP contract at $290/t cfr with 180 days credit, an increase of $50/t on last year.
Indian buyers have signed contracts for around 3mn t of firm and around 400,000t of optional MOP with global suppliers. The contracts run from September 2018 to June 2019.
Canpotex makes quarterly shipments to its traditional buyers IPL, CIL, IRC Agrochemicals, Chambal and Mosaic, based on their requirements. Argus estimates that Canpotex will ship close to 1mn t of MOP for the duration of the contract. It shipped 1.3mn t of MOP from July 2017-August 2018, under the previous contract. Jordanian potash producer APC has agreed to supply India's IPL and Zuari Agro Chemicals with MOP. APC agreed to supply IPL, India's largest potash buyer, with 300,000t of MOP, plus options to take 30,000t more. APC also agreed to supply Zuari with 220,000t.
Other producers have followed suit, and ahead of going to press, only K+S and Uralkali had yet to sign with the major suppliers. Uralkali is said to have very little product available for India until December, so may defer altogether or offer a smaller quantity than it did last year. Uralkali sent nearly 1mn t to India in the 2017-18 contract period. K+S sent around 165,000t.
Importers Zuari and MCFL both raised the MRP of MOP fertilizers to Rs18,980/t shortly after contracts were signed. IPL, CIL, and Indorama also raised the MRP to Rs19,000/t in late September.
The rate is Rs4,580/t higher than the previous MRP of Rs14,400/t. The depreciation of the rupee and the settlement of annual potash contracts $50/t higher against last year drove the increase.
Indian importer IPL in mid-August raised the MRP from Rs14,000/t to Rs14,400/t to counter the effects of the depreciating rupee.
Argus expects potash consumption to fall by 10pc year on year, as a result of the above factors.
